When Are Payments Due And When Do You Impose Late Fees

Question

I have been very lax with my tenants. Most of my leases state the payment must be POSTMARKED by the 7th of the month. Generally, that has been fine with me and since Covid has hit, I have not been charging any late fees. My intent is to open a PM company early 2021 and am quite sure most clients would want a more stringent policy. I am considering making payments due on the 1st and past due on the 4th. Thoughts? How many managers require rent on the first and impose late fees on the 2nd?

Theresa Harris · Answer

I agree that it creates extra work for the PM which is why I suggested they get a percentage of the late fees.

If you don't have any laws where you are as to what is late, I would simply go with rent is due on the 1st, anything after that is late.  Looking at other types of bills, if a credit card company has a due date of the 1st of the month, people know it has to be there and in their hands by the 1st, not postmarked the 1st. I don't see what rent should be any different.

Sean Honeycutt · Answer

I will freely admit that I am:A) Not an attorney - my comments and thoughts are opinion only!B) New to the game - I've only been leasing homes for two years so far.C) Based on the idea this is a side business, not my main source of income.That said:I require my tenants to sign an ACH authorization for rent and tell them the rent is due on the first of the month, every month.  If the debit is rejected, a $75 late fee will be applied for each rejection and that it will auto reattempt on each Friday until successful.  If there are 3 rejections from the bank, a form letter is automatically issued with a 30 day pay or quit notification and my attorney is notified.  I've been informed that being "nice" is an invitation for abuse.  That said, have I ever waived the late fees?  Of course.  She was a single mother of three and was in the hospital with CoVID with her boyfriend babysitting her kids.  She was highly communicative via phone and text and she made up the late rent within 30 days of returning home.  Would I recommend you accept excuses to get out of late fees?  Not really.  Again, being nice seems to just invite abuse.  Being reasonable is a different story.  I do, highly, recommend getting those ACH approvals from tenants if you can legally request them.  It's saved me a lot of headaches in collecting rent (through my PM of course.)Oh yes, and I do use a PM.  For me this is a side job and not my main revenue stream.  It's worth it for me to pay 10% for eviction coverage, tenant screening, not having to answer the phone at 2am, not having to schedule showings, etcetera.  The properties are still cash flow positive with a PM, which is important (you don't want to subsidize someone's home, right?)  So for me, in my case, a PM makes sense - especially since the PM gets to be the bad guy and explain to the tenant why they just got billed $225 + rent because they failed to fund their checking account (not that it's happened yet, ACH has saved having to collect late payments entirely IMHO.)

Tracy Streich · Answer

@John Thedford We are due on the 1st and late on the 5th.  This gives them a few days grace.  I know many that are due on 1st and late on 2nd.  They say grace period is always 30 days because you know it is always due on the 1st!   It is very inconsistent.  I would just pick one you are comfortable with and stick with it.

Kenneth Garrett · Answer

@John Thedford

I have used both; due on the first your late if it comes in on the 2nd or later and I’ve used the 5 day and it’s late if it’s received on the 6th.  I don’t see much of a difference either way.  If there going to be late there going to be late.  In my area, it is common to use the 5 day grace period.  During COVID it’s especially difficult.  The other issue is require payments electronically.  It will avoid postmarks and it’s much more efficient.

John Thedford · Answer

@Theresa Harris we don't have restrictions here. As for keeping the late fees, that is always a debate. Some PM companies keep it, others split it, etc. What the owners do not consider is the PM company having to expend time and money to collect when tenants are late. I would prefer they ALL pay on time regardless if it was my own property or one I managed for others.

Theresa Harris · Answer

Read your local laws.  Where I am (Canada), they are due on the 1st, so the 2nd is late.  I think in the US most places give them until the 5th.  Not sure if that is postmarked by the 5th (if so that is a joke).  If you are starting a PM company, know the laws inside out and be clear about who gets that late fee.  Some PMs keep it, which is dishonest to me. I get if they keep a percent of it, but it is not their money that is late.

When Are Payments Due And When Do You Impose Late Fees

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